Distributors

Google Inc. is not poised to leave China because it's shocked over its cyber security problem. It's no more shocked than Captain Renault was to discover gambling at Rick's Caf? in the movie "Casablanca."

But unlike Renault, who collected his winnings even as he closed the casino, Google seems willing to forego its share of China's massive consumer market.

Being both compliant to China's censorship demands and threatening Google's brand can't be helping Google, especially as it begins working with LA to provide email and applications services to some 34,000 city accounts, including its police department.

The security problems with China are a well known risk for IT companies doing business there, but Google's threat to leave China sharpens the question: Is China worth the risk? For Google, the answer is clearly "no."

But for many other IT companies, opening up facilities in China and dealing with risks in that country is the bargain made to access its market. There are an increasing number of businesses that have been considering China solely as a potential offshore location for IT work, and Google's decisions may prompt some to cross China off the list of offshore development destinations.

Peter Bendor-Samuel, CEO of Everest Group, a Dallas-based outsourcing consulting and research group, said Google's move "creates a greater perception that China is a risky place form an IP (intellectual property) and security perspective" and that can impact decisions about moving work to China or maintaining existing work there.

China has a lot of competition in the services market. Also, the overall cost of development work in China is higher than in India because of cost associated with the language and even additional security, Bendor-Samuel said. Nonetheless there has been increasing interest by firms in the China market to access its talent, he said.

But China is still relatively small part of the services market. In the area of business process offshoring, India has 35% of the market, the Philippines 15%, and China, 3%, Everest said.

Bendor-Samuel looks at China's issue with Google as similar to the problem India faced with Satyam Computer Services Ltd., in the wake of its accounting scandal last year. The Indian government stepped in to protect the industry and in doing so sent a strong message to U.S. firms that do business in India.

If you are "opening yourself up to risk you want to be in a country that understands the importance of these things and will do what is necessary," he said. Today, Satyam operates as Mahindra Satyam after Mahindra Group's IT h Tech Mahindra, acquired the firm.

John Pescatore, a Gartner Inc. analyst, doesn't believe Google's decision will have a major impact on other firms, which have been widely aware of the threat posed by China.

And while China censorship gets the ire in the U.S., Pescatore points out those European companies have been hesitant about sending their data to the U.S. because of the Patriot Act and the power that gives the government to access data.

Dr. Fariborz Ghadar, director of Penn State's Center for Global Business Studies, said Google's message to China is "enough is enough," and the problems of that China poses is not worth the damage to the brand.

Usha C.V. Haley, a co-author of author of the "The Chinese Tao of Business: The Logic of Successful Business Strategy" (Wiley, 2004), doesn't know if Google's action "will have wider ripples than it already has" on other firms. But for Google, the tradeoff "was not beneficial."

Slideshows

ARN Connect - How can partners create customer value through cloud and security?

This exclusive ARN Connect event, in association with Juniper Networks and Westcon-Comstor, deep dived into the key customer priorities during the next 12 months, outlining emerging partner opportunities while drawing up a blueprint for cloud and security success.

Selling beyond the CIO – How partners can influence the new breed of tech buyers

This ARN Roundtable, in association with Oracle, highlighted the emergence of a new breed of technology buyer, assessing how partners can engage outside of IT, and the skills required to sell across new business units.

Copyright 2018 IDG Communications. ABN 14 001 592 650. All rights reserved. Reproduction in whole or in part in any form or medium without express written permission of IDG Communications is prohibited.